Additional Application from 1992 to 2003 the Number of Milk Producers in Producers

question 45

Multiple Choice

Additional Application
From 1992 to 2003 the number of milk producers in Florida has fallen from 300 to 190.In those same 10 years the number of dairy farms nationwide has decreased by more than 44,000.Why? The market price in a perfectly competitive industry is not determined by the individual sellers,but rather the market supply and demand.While the Florida dairy industry might not be "perfectly" competitive due to the certain USDA policies,its behavior does approximate one.If prices are not high enough to maintain some level of normal profit,firms will leave the industry.And this is what has been happening in the dairy industry.In the months after September 11,2001 the demand for milk fell,causing the price of 100 pounds of milk to decrease from about $19 to about $14,a 25-year low.In addition to falling prices,the costs of operating dairy farms have risen.Increased property taxes and environmental compliance permits have made dairy farming less viable.The average dairy farm in Florida is small with only about 700 cows.This further prevents a single supplier from being able to influence the market price.Many farmers view this business as a family operation and one they would like to pass on to their children.But continued low milk prices and profits make the likelihood of such an inheritance unlikely.
Greg C.Bruno."Milk Industry Turns Sour," The Gainesville Sun,January 22,2004,pp.1,4.
-Why can't the milk farmers just increase their prices to insure higher profits?

• A)Each farmer is too large to charge a higher price.
• B)Each farmer has too many cows and does not know the market price.
• C)The average farm is too small to influence the market price.
• D)The government will not allow the farmers to raise their prices.

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Definitions:

Fiscal Policy

The employment of expenditure and tax policies by a government to affect economic conditions.

Government Spending

Expenditures made by the government sector on goods and services, including salaries of public servants, public investments, and social security benefits.

Aggregate Demand

The collective requirement for goods and services in an economy, determined at a particular price point over a defined period.

Taxes

Compulsory contributions to state revenue, levied by the government on workers' income and business profits, or added to the cost of some goods, services, and transactions.